Happy Days, Again?

Happy Days, Again?

BANKING TRENDS by Mark Gordon | Managing Editor

Three Gulf Coast banks raised a combined $55 million in start-up capital in less then three months - all from local investors. Didn't someone say something about a recession?

With the economy in its current slump, any startup business that takes in $20 million or even $15 million in investment capital has something to brag about.

But the bragging factor multiplies significantly not only when that business is a community bank, but when that business has so many potential local investors it has to turn them away. That's what happened recently to a trio of Gulf Coast startup banks - the only three banks to register as a de novo institution with the Florida Office of Financial Regulation on the Gulf Coast in 2007.

This, while dozens of other banking executives up and down the Gulf Coast fret about the economic turbulence and how they can avoid major losses.

Not these banks. First it was Florida Shores Bank-Southwest in Venice. That bank, run by some of the same executives behind Venice-based Premier Community Bank, which was bought by Colonial Bank in 2004, raised $20 million through two offerings placed within a month late last year.

Jim Kuhlman, Florida Shores' president and chief executive officer, says finding 147 shareholders willing to invest six-figure amounts in a new community bank was the least of his challenges. That interest, it turns out, has carried through to customers in the institution's first two months of operations, where the bank has so far compiled $29 million in assets and just under $20 million in loan commitments. Some of those loans are even earmarked toward construction companies and projects.

And as recent as Feb. 8, Kuhlman received board and committee approvals for another $6 million in lending commitments. "Sometimes," Kuhlman says, "it's almost daunting the loan demand we have."

Meanwhile, more recently, Gateway Bank of Southwest Florida, a Sarasota-based de novo that is a sister bank to two other Florida Gateways, one in Daytona and another in Ocala, raised $15 million in less then three months. The bank then had to turn away about a dozen people looking to get in.

"We oversubscribed," says Shaun Merriman, Gateway's president and CEO. "That's a pretty powerful statement given the current economy."

And an even more powerful statement was made late last year 90 miles north of Merriman's office, in Dade City. That's where Bud Stalnaker, Jr., a well-known banker in that Pasco County market, was able to raise $20 million in just one week for his de novo operation, Florida Traditions Bank.

Like Merriman and Kuhlman, Stalnaker also had to turn people away, in his case passing up an extra $10 million. "Fundraising was easy," says Stalnaker, who adds that the majority of the Tradition's financial supporters were the same people who supported his past banking efforts in the area.

Murky waters

Bankers tuning away investors? Banks planning branch expansions? Banks loaning millions of dollars to construction companies? What in the name of 2004 is going on here?

After all, 2008 was supposed to be a year of survival, at best, for many Gulf Coast community banks. And in many cases that has been true. Some examples of banks currently facing tough times include:

• Bank of Florida: The Naples-based institution, one of the largest publicly held banks in the state, reported a $2.7 million loan loss provision in the fourth quarter of 2007. In a recent earnings statement, bank President and CEO Michael McMullan attributed the problems to the "current market conditions in Southwest Florida," including some commercial real estate loans;

• First Priority Bank: The Bradenton-based bank, with $33 million in non-performing loans going into 2008, has taken several steps to survive the slump, including retaining a Dallas-based investment firm to help it raise additional capital and laying off 16 employees due to overstaffing. The bank's co-founder and president resigned Feb. 4 and a new president and CEO has been hired;

• Stonegate Bank: The $250 million-asset community bank, based in Fort Lauderdale, opened a branch just south of downtown Sarasota in October. By early January the bank announced it would be closing the branch, citing the poor economic conditions. The bank had planned to eventually expand to Fort Myers and Naples, with a focus on commercial lending and mortgages;

• First State Bank: The publicly traded Sarasota-based bank recently increased its loan loss reserves 55%, to $7.6 million. In its most recent earnings statement, the bank also said 10%, or $5 million, of its residential loans were impaired, while 8%, or $13.1 million, of its commercial loans were impaired.

Customer focus

Those loan and profitability problems, in a generic sense, are part of what is fueling the fast times at Gateway, Florida Shores and Traditions. To be sure, all of those bank's executives commented recently on how this really is the best time to be starting a community bank, as their new institutions aren't saddled with any bad loans.

And banks these days, new or old, are hyper-focused on loan scrutiny.

"The fact that we don't have any troubled assets," says Gateway's Merriman, "allows us to focus entirely on customer acquisition."

But Merriman, who previously held executive roles with banks such as AmSouth and SouthTrust, is nonetheless moving ahead with some caution. Ditto for the other new banks.

For example, Gateway and Florida Shores are operating under somewhat similar tiered business models, where there are a series of sister banks operating across Florida under the same name. The other banks in the operation provide a financial cushion in case the Gulf Coast markets continue stumbling. Says Merriman: "Our business model was reflective of the current economy."

And in Florida Shore's case, the holding company in Pompano Beach serves as the central office for the entire operation, including Florida Shores Bank-Southeast, which is also based in Pompano Beach. According to Kuhlman, that central office will eventually include Florida Shores branches in Sarasota and Bradenton, as well as another de novo institution for Lee and Collier counties.

The key in this model, Kuhlman says, is each bank has its own board and charter, so all decisions remain local. Merriman adds that at Gateway, the sister banks have essentially provided a road map for how to do it right.

Water-skiing banker

Gateway Bank of Southwest Florida President and CEO Shaun Merriman has a banking resume that is as stellar as banking resume come.

It has the right education background, including a degree from the Wisconsin School of Commercial Banking.

And he has 20 years of service in various banks, from working as a credit analyst up through running SouthTrust Bank's Houston market, which, at the time, consisted of nearly 30 branches and more than $1 billion in assets.

But Merriman has something else on his resume that few other Gulf Coast bankers have: He was a professional water skier before going into banking.

A Chicago native who spent most of his childhood in Wisconsin, Merriman initially moved to Orlando in 1985 to work as a water skier for Sea World. It was a hobby-turned-job that he had been planning for a few years.

But after about a year at Sea World, Merriman decided he had a better financial future if he made banking his life's work and waterskiing his life's hobby. So through a friend - and fellow water skier - he got a job at Florida National Bank in Orlando.

The rest is banking history.

BALANCE SHEET FOR TWO DE NOVO BANKS

The following reports from the Federal Deposit Insurance Corp. are based on quarterly call reports through Dec. 31, 2007, the most current number available for the banks that opened in the last half of 2007.

Florida Traditions Bank, Dade City

(Dollars in thousands)

2007 Fourth Quarter

Total assets $41.4 million

Deposits $21.6 million

Total liabilities $21.6 million

Total equity capital $19.9 million

Loans secured by farmland $1.3 million

Loans secured by multifamily residential $500,000

Loans secured by non-farm residential $7.3 million

Commercial and industrial loans $1.84 million

Total loans & leases, net of unearned income $11.4 million

Florida Shores Bank-Southwest, Venice

(Dollars in thousands)

2007 Fourth Quarter

Total assets $25.2 million

Deposits $6.6 million

Total liabilities $6.7 million

Total equity capital $18.5 million

Revolving, open-end loans $1.1 million

Close-end loans secured $5.3 million

Loans secured by non-farm residential $6.3 million

Commercial and industrial loans $2.5 million

Total loans & leases, net of unearned income $15.2 million

REVIEW SUMMARY

Business. Florida Shores Bank, Venice; Gateway Bank of Southwest Florida, Sarasota; Florida Traditions Bank, Dade City.

Industry. Banking

Key. A trio of Gulf Coast banks easily and quickly raised millions in start-up funds.